To understand the situation you all need to understand what Kissinger calls Petrodollar Recycling. I am going to give an extremely brief re-cap of it here, so you'll understand the importance of breaking news.

*1971* We lose the gold standard because the American Government had overspent to fight the Vietnam war, which forced countries like France to begin demanding payment in gold at the end of the 60's. Nixon feared that if he didn't remove the Gold Standard, foreign creditors could bankrupt the treasury, since they had over printed based on their reserves.

*1974* OPEC announces exploratory plans to begin accepting a basket of currencies for oil, rather than just the US dollar. Kissinger sends treasury secretary William Simon to Saudi Arabia to convince them to abandon their plans and sway the rest of OPEC into doing the same.

*1974-1978* During these four years inflation was bad in the US, as the loss of the gold standard meant the currency was being watered down. OPEC who was ONLY accepting US dollars felt they were being screwed because the dollar was continually being devalued. They again petitioned to begin trading oil in multiple currencies, especially the Yen and German Mark, because while the US currency was losing value, those currencies were appreciating in value.

*1978* The Saudi's strike a final deal with American Treasury Secretary guaranteeing they will price their oil in Dollars in exchange for two things, first a higher rating at the IMF (they went from 38th to 8th), and a promise that the US dollar would soon increase in value. In exhange the Saudi's would then price the oil in dollars, as well as invest all their money into American debt Via the NY Fed.

*1980* Gold hits 860$, which was a tiny $35 just a decade earlier, more than 2000% inflation in one decade.

*1981* Interest rates are set to an unprecedented 20% and a period of rapid deflation (through contraction) sets in, dramatically increasing the value of the dollar (deflation), making good on the promise to the Saudis.

WHY IS THIS IMPORTANT?

Because after 1971, the dollar had no backing and to solve this issue they instead backed the dollar with BLACK GOLD. By ensuring that all oil on Earth was traded in the dollar, they ensured large consistent demand for the dollar OUTSIDE of the United States, meaning that those dollars wouldn't be flooding the American market, and wouldn't be causing runaway inflation.

If we estimate the world uses 70,000,000 barrels of oil per day, and each barrel is sold for $100, that means we have $7,000,000,000 just in crude sales, this doesn't even count all the derivatives of oil, and other related industries that rely on the US dollar.

Now because almost every country relies on imported oil (or imported refined products like gasoline, example, Iran) every nation on Earth MUST hold US dollars in their reserves so that they can purchase things on the market.

In total, the world is holding roughly 10 trillion in International Reserves, 75% of which is the US dollar, the other 25% being other national currencies as well as Gold. This means that the nations of the world are holding roughly 7.5 trillion US dollars to facilitate their trades.

If the US dollar loses its reserve currency, then it loses DEMAND, if it loses demand, then those dollar come flooding home unleashing rapid inflation.

WAR WITH IRAN

In 2000 Saddam announced that he was going to switch to the Euro for trading oil. This would have eliminated a large chunk of the demand for the US dollar that is relied upon to keep dollars OUT OF THE COUNTRY!

We all know what happened to Saddam.

Recently Ghaddafi announced he planned to abandon the US dollar for oil trading.

We all know what happened to Saddam.

JANUARY 2012 - IRAN ANNOUNCES IT WILL NO LONGER USE THE US DOLLAR FOR OIL!